††††† NECESSITY,
FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive
Director of Insurance may promulgate
administrative regulations necessary for or as an aid to the effectuation of
any provisions of the Kentucky Insurance Code. KRS 304.49-140 authorizes the Executive
Director of Insurance to establish and
amend administrative regulations related to captive insurance companies as
necessary to effectuate the provisions of KRS 304.49. KRS 304.49-170 requires
the Executive Director of Insurance to
promulgate administrative regulations concerning the control of risk management
functions of a parent or affiliated company by a pure captive insurer. This
administrative regulation establishes the requirements regarding captive
insurer parents and affiliates.

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1. Definition. "Company" means captive insurer.

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2. A pure captive insurer shall participate in the risk management function of
any controlled unaffiliated business to be insured by the company and shall
establish procedures for effective control of risk management activities
regarding the controlled unaffiliated business. The executive
director or his designee may request
evidence of a pure captive insurerís participation in the risk management
functions of controlled unaffiliated business as a portion of a market conduct
or financial examination authorized under KRS 304.2 or at any other time the executive
director deems necessary.

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3. Each company shall report to the executive director within thirty (30) days after any change in its executive
officers or directors, including in its report a statement of the business and
professional affiliations of any new executive officer or director. A director,
officer, or employee of a company shall not, except on behalf of the company,
accept, or be the beneficiary of, any fee, brokerage, gift, or other emolument
because of any investment, loan, deposit, purchase, sale, payment or exchange
made by or for the company. That person may receive reasonable compensation for
necessary services rendered to the company in his or her usual private,
professional or business capacity. Any profit or gain received by or on behalf
of any person in violation of this section shall inure to and be recoverable by
the company.

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4. In addition to the investment of funds in Section 3 of this administrative
regulation, each company chartered in this state is required to adopt a
conflict of interest statement for officers, directors and key employees. The
statement shall disclose that the individual has no outside commitments,
personal or otherwise, that would divert him from his duty to further the
interests of the company he represents. This shall not preclude that person
from being a director or officer in more than one (1) insurance company. Each
officer, director, and key employee shall file a disclosure with the insurerís
board of directors yearly.

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5. (1) A person, other than the issuer, shall not acquire or attempt to acquire
any voting security of a domestic captive insurer without the prior written
approval of the executive director,
if, after the consummation thereof, that person would directly or indirectly be
in control or have exercisable control of that company. For purposes of this
administrative regulation, "acquire or attempt to acquire" includes
making a tender offer or other request for voting securities, making any
invitation for tenders of voting securities, entering into any agreement to
exchange securities for voting securities, or otherwise seeking to acquire or
acquiring voting securities in the open public market or private market.

††††† (2) A person shall not enter into an agreement to merge
with or otherwise to acquire control of a domestic company without the prior
written approval of the executive director.

††††† (3) In considering any application for acquisition
of control or merger with a domestic company, the executive
director shall consider
all of the facts and circumstances surrounding the application as well as the
criteria for establishment of a company pursuant to KRS 304.49.

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6. Any change in the nature of the captive business from that stated in the
company's plan of operation filed with the executive director upon application requires prior approval from the executive
director. Any change in any other information
filed with the application shall be filed with the executive
director but does not require prior
approval. (27 Ky.R. 2012; Am. 3253; eff. 6-8-2001; TAm eff. 8-9-2007.)